Alternative Trading Clause

Purpose

Under a business interruption policy, the insured is generally obliged to mitigate its loss – which includes continuing to sell goods or render services elsewhere where possible during an interruption, for example through a temporary location, an online channel, or a third party acting on the insured’s behalf. The alternative trading clause makes clear that revenue generated in this way is brought into account as actual turnover when calculating the loss, regardless of exactly where it was earned.

Effect and limits

Without this clause there would be some uncertainty as to whether only turnover generated at the actual damaged site should count – the clause expressly closes this gap to the insured’s disadvantage, since turnover earned elsewhere reduces the recoverable loss. For consistency of calculation, standard turnover and actual turnover must be determined on the same basis: if standard turnover includes surcharges (for example delivery charges), these must also be reflected in actual turnover. For bespoke or made-to-order businesses, where customers may wait for the insured to resume production rather than buying elsewhere, turnover may be deferred rather than lost, which makes applying the clause alongside the end of the indemnity period more complex.

Negotiation and practice

The clause is market-standard and generally not negotiable, since it reflects a basic principle of the duty to mitigate loss. In practice this means the insured should carefully document any form of alternative trading during an interruption – deliberately delaying or concealing substitute revenue in order to inflate the claim would amount to insurance fraud.